2020: The year of digital products

Looking to get ahead of competitors; invest in digital product development capabilities early in 2020.

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I'm sure we can all agree that the past decade has seen a remarkable acceleration in technology evolution. The convergence of advanced tech that ushered in the era of digital business continues to develop at accelerated rates. By 2030, this tech evolution will have reshaped every product we use today.

Digital transformation is so passé

Alas, by the end of 2019, every tech services firm was claiming to offer expertise in digital transformation. But what is transformation? Unfortunately, too many technology executives view digital transformation as akin modernizing the IT stack to move to the cloud, and too many marketing executives view digital transformation as an exercise in channel marketing and customer experience delivery. Sure, these are necessary components, but they are insufficient on their own. Digital transformation goes much further, fundamentally reshaping the way you create value for your customers and drive revenue growth.

Over the past 10 years, what I found is that most firms miss the fundamental need to change their operating model to become a software-driven business; using technology to create new ways to deliver customers outcomes. Instead of producing cars, auto manufacturers switch to being a company which uses software and technology to help people get from A to B; instead of offering banking services, banks switch to being companies that use software and technology to help customers achieve their financial goals; instead of making apparel, fashion firms become technology firms aiming to help customers achieve their comfort/fashion/clothing desires.

By contrast to changing the value proposition, many companies spent the back-half of the last decade introducing then tweaking digital customer experiences that enhance the old business model. These changes typically bring a degree of perceived value from customers; but only for a short while. As customer expectations evolve, the perceived value wanes. And before too long, new digital experiences begin to look similar to each other. This is why I believe the next decade will see a more fundamental shift happening across businesses of all shapes and sizes.

Digital products vs. Digital experiences

As the digital maturity in companies evolves, there is a gradual shift in the way people think. They move from thinking, "How can we use digital to sell more product," to thinking, "how can we use technology to reimagine the way we help deliver customer value?"

This shift in thinking allows designers, product owners, technology professionals, customer experience professionals, and marketers to all come together around a singular view of what's important to customers. When this happens, employees begin to rethink what's possible. When you unleash this thinking inside your organization, you'll move from designing new digital experiences to designing new digital products.

The big difference between a digital experience and a digital product is that a product is sold. Facebook and Google both have digital products sold to advertisers. Netflix is sold to consumers. Lyft (and Uber) sells access to its service to car owners as a way to monetize an idle asset, and to consumers needing to get from A to B. Amazon can sell Prime to consumers because it offers them a perceived value beyond using the free Amazon.com retail service. Digital products deliver inherent value such that customers are willing to exchange a thing of value, e.g., money (or time/privacy) to obtain the product benefit.

Because products compete for customer dollars and time, market forces drive product managers to maintain the perceived value of the product to avoid losing market share. While Apple's app store has many successful digital products, it has even more unsuccessful ones. Digital marketplaces (products in their own right) now advertise new digital products surrounding market ecosystems. And because the market forces surrounding digital products evolve at a very fast pace, digital product evolution must be continuous.

In 2020, break away from a legacy product mindset

The shift to continual digital product evolution is one of the hardest transformations for non-software companies to undertake. The legacy way of doing things always creates such inertia that it makes change hard. But in hitherto successful companies, change becomes nigh-on impossible. Nowhere in the past decade did we see this play out more clearly in the last decade than at GE, previously a stalwart of the DOW. While Jeff Immelt understood the need to become a digital business, the organizational inertia presented too great a hurdle for the company to make all the changes it needed.

We see this mentality pervading even in companies we expect to be advanced. The new electric Porsche Taycan, hailed by performance car enthusiasts as a Tesla killer, was launched at the end of the decade without designing over-the-air software updates as a key product feature (though Porsche claims the Taycan will be able to receive updates over-the-air). Has anyone at Porsche been paying attention, you might wonder? Tesla's over-the-air software updates give them the ability to design a vehicle around software in ways that no other company can match. Porsche has built a wonderful driver's car -- which is what they set out to do. What they didn't set out to do was to design a car around the software. Tesla thinks digital-first. As a performance car enthusiast, I'd drive a Taycan over a Tesla any day. But I'm left wondering how long it will take legacy auto industry execs to think in terms of digital products.

Watch for digital products in 2020 research

Because execs in many firms are already evolving in their digital maturity, I expect we'll see greater awareness around digital product opportunities in 2020 and 2021. But very few tech vendors who claim expertise in digital transformation are truly helping clients design and build new digital products to sell to customers.

Looking forward to 2030

By the end of the next decade, I expect we'll wonder how we ever managed to design products without starting with the software. By 2030, I predict every successful company will be a software product company or a hybrid software and physical product company.

If your business isn't already designing new products around software, 2020 is a great time to get the ball rolling. To get ahead of your competitors, invest in digital product development capabilities early in 2020.

This post was written by VP, Principal Analyst Nigel Fenwick, and originally appeared here.